Rent-to-Own

Businesses that rent appliances, furniture, and other consumer goods, giving consumers the option to own the product, are commonplace in many communities. These businesses offer low weekly or monthly payments in addition to the option to purchase either at the end of the contract or after some other specified time. Other incentives may include immediate delivery, no down payments and no credit check. Because rent-to-own is not "credit" in a technical, legal sense, neither a credit application nor a credit check is necessary. Someone who has a poor credit rating, low earnings, or sporadic income may find it difficult to qualify for installment credit with many retailers making rent-to-own a reasonable alternative. Rent-to-own differs from consumer leasing. For more information on leasing, refer to Auto Leasing and For Your Information … Consumer Leasing.

Despite the advantages, rent-to-own transactions also have disadvantages. In many cases, by the end of the rental contract, the consumer has paid substantially more than the actual value for the product, and thus in the practical economic sense, paid a high rate of "interest" to acquire the item. While rent-to-own transactions may have flaws, some consumers may find it a sensible choice.

Example: Janet Viewer goes to Lester's RentYourOwn store to rent a TV. The TV she chooses is valued at $500. Her rental payments are $12.00 per week for 78 weeks (18 months) for a total of $936. One year into the rent-to-own contract, Ms. Viewer stops making the payments, deciding to no longer rent the TV. Not only have her payments thus far exceeded the TV's value by $124 ($624-$500) but she also has to return the TV to Lester's.

The Law

Because a rent-to-own contract is NOT a credit agreement but a rental contract, it does not come under the federal Truth-in-Lending Act's interest rates and finance charge disclosure requirements. This has made it difficult for consumers to accurately compare the costs of a rent-to-own transaction with traditional credit financing or purchase agreements. As a result, many states, including New Hampshire, now have laws to help consumers who enter into rent-to-own transactions. New Hampshire's Rent-to-Own Agreement Act (RSA 358-P) became effective in January 1996 and governs any rent-to-own contract in New Hampshire. The act defines a rent-to-own agreement as covering property for personal or household use where, for an initial period of four months or less, the goods are rented and, following this initial period, the consumer may buy the goods. Dealers who offer rent-to-own contracts are required to disclose certain information to a consumer before the agreement is signed. Eleven disclosures are required:

The exact dollar amount of each payment, when the payment is due (weekly or monthly), the total number of payments and the total dollar amount necessary to own the goods under the contract.

A statement of the consumer's liability for the goods under the contract where the goods are lost or damaged prior to ownership.

A brief and accurate description of the goods covered by the contract (and identification number if applicable), including whether the goods are new or used.

A statement that the consumer cannot own the goods until the consumer has made the required total payments.

A statement of the cash price of the goods (i.e., the price at which the goods would have been sold for cash on the contract date), and if two or more items are covered under the agreement, an aggregate cash price can be given. The price disclosure must also include the following statement:

"If you want to purchase this or similar property now, you should consider cash or credit terms that might be available to you."

Disclosure of the amount of any down payment or deposit, which must be made either before the agreement is signed or when the goods are delivered.

A statement that the disclosure of the total payments does not include other charges, such as late fees, default fees, pickup and/or reinstatement fees. These fees must be identified separately in the agreement.

A statement that both describes the consumer's option to purchase (including a statement that the consumer has the right to exercise an early purchase option) and indicates the price, formula, or method for determining the price at which the goods can be purchased.

Identification of whether the consumer or the dealer is responsible for maintaining or servicing the product while it is being rented, a description of the extent of the responsibility, and what part of the responsibility is covered by a manufacturer's warranty.

Clear identification of the dealer and the consumer, as well as the date of the agreement.

A statement explaining that the consumer can terminate the agreement without a penalty by voluntarily returning the property in good repair (reasonable wear-and-tear excepted) at the end of the rental term along with any past-due payments.

One major drawback to rent-to-own agreements has been that consumers who fail to make one or more weekly (monthly) payments could face repossession of the rented property. In the worst case, the consumer would lose all right to purchase the item and all money paid toward the rental contract. New Hampshire's law addresses this problem by providing consumers with a mechanism to reinstate the rent-to-own agreement after default.

A consumer can reinstate a rent-to-own agreement after failing to make payments, after repossession, or after voluntary return of the goods, under certain circumstances. If you have paid less than two-thirds of the amount required to own the goods, you have 21 days after the return of the property to reinstate the agreement. If you have paid more than two-thirds of the total payments required to own the goods, you have 30 days in which to reinstate the agreement. The contract can be reinstated without losing any rights or options by doing the following:

Making all past-due payments

Paying all reasonable pickup and/or redelivery charges if the property has already been picked up

Paying applicable late fees within two days (for weekly payments) or five days (for monthly payments) of the renewal date.

Nothing prevents the dealer, however, from trying to repossess the goods during the reinstatement period if the goods have not already been returned by the consumer. If the agreement is reinstated, the dealer must return the same goods or substitute goods of comparable quality and condition to the consumer.

Points To Remember

Comparison shop among several rent-to-own merchants before signing a contract.

Read the contract carefully before you sign.

The following is a list of things to look for in a rent-to-own contract:

What is the cash price of the item to be rented?

What is the price of the rental option?

What is the total price (cash price + rental price)?

What are the requirements to purchase the item? When can the item be purchased?

What happens if you are late with a payment or miss a payment? What are the fees for late or missed payments? Is there a limit on the number of late or missed payments prior to the item being repossessed?

Can you get this item for less by paying cash or by buying it from another retailer with a traditional installment credit contract?

Where To Go If You Have A Problem

Contact the NH Consumer Protection and Antitrust Bureau if you have a problem with a rent-to-own agreement.